Budget has changes for oil and gas

Opening state lands; One-Call mandates

February 14, 2014

Amongst the other proposals in Gov. Tom Corbett's more than 1,000-page proposed budget, is an expansion of state lands open to drilling operations.

The proposal comes at a time when the Pennsylvania General Assembly is considering measures that, coupled with the governor's proposal, would transform how Pennsylvania treats both drilling and state land usage.

Beyond the expansion proposal, the state is re-examining how it handles the PA One Call System, which provides a single source for locating underground infrastructure, including utility lines, before excavation takes place. The change could impact whether drillers have to report lines to the one call system.

When the governor introduced his proposed budget last week, it included an end to the four-year-old moratorium on drilling on state parks and forests.

Corbett proposes allowing gas and oil companies to lease new land for limited drilling activities that do not include surface impact activities additional to those already existing.

It would be the first opportunity for oil and gas producers to expand activities on state land since 2010 when former Gov. Ed Rendell leased more than 700,000 acres of state forest land for drilling. Rendell then signed an executive order preventing the lease of any more land.

While he is proposing the measure to the Pennsylvania General Assembly in his proposed budget, he does not need legislative approval for the move. As the moratorium was put in place through an executive order, Corbett could unilaterally lift it with the stroke of a pen.

Corbett estimated ending the ban would generate $75 million in immediate revenue for the state.

"One of the things that we are looking at, Gov. Ed Rendell placed the moratorium on any further drilling on any state lands," state Rep. Kathy Rapp (R-Warren) said. "We're facing the same thing, in Pennsylvania, every state is facing. Where do we get the revenue for some of the programs we have?"

According to Rapp, population demographics are prompting increased growth in medical assistance spending, already the fastest growing driver of spending in the state.

"The medical assistance is the largest growing part of the budget," she noted. "It used to be education, and then welfare overtook education because of the expansion of Medicaid.

"A lot of that is because Pennsylvania is a state where we have a lot retirees coming in. So many times, our folks end up in skilled nursing facilities and they don't have long-term care disability or insurance to cover skilled nursing. So when they don't, they look for a way to pay. If you don't have the ability to pay for long-term care, then you apply for medical assistance. As Pennsylvania grows older and ages, we have more and more people who need that medical assistance."

Rapp advocated for lifting the moratorium, citing drilling as a proven means of raising revenue.

"One of the ways that we have found, and has actually proven to be a revenue source is natural gas," Rapp said. "We all know that Pennsylvania has been found rich in natural gas. Therefore, the governor is looking at taking off that moratorium. With the new drilling methods, they can drill underground and extract that gas. It's really for revenue... we're not going to see Marcellus drilling rigs damaging the land because of the way they have to drill.

Meanwhile, legislation sponsored by state Rep. Matthew Baker (R-Bradford/Tioga) would move governance of the one-call system from the Pennsylvania Department of Labor and Industry to the Pennsylvania Public Utilities Commission. The measure would also remove all exemptions from participation in the system including those for municipalities, the Pennsylvania Department of Transportation and activities related to finding and extracting natural resources.

"We are pushing, some of us, to have the conventional wells, what we would call our small producers, exempt from that bill," Rapp said. "We've been drilling around here since Drake Well, 1859, so over 150 years. There are pipes and lines everywhere surrounding us and these leases are sold constantly. A lot of the time, nothing in those leases refers to where those lines are.

"We want our producers to be responsible, and they believe that they are responsible, but they are facing further regulations. So this is just another burden on the small producers. The Marcellus people, they can take care of this easily. They have the finances. But the small producers, it's another burden on the small producers that we're looking at."

Rapp said she has worked with state Rep. Martin Causer (R-Turtlepoint) to push for an exemption for conventional drillers.

"Rep. Causer and I have gone to our leadership and the chairman who has backed off the bill," she noted. "This is the same issue that we're having with the impact fee. They do not recognize the difference between conventional, our small producers here, versus out non-conventional, the Marcellus Shale. There's a huge difference in the impact. Our small producers, they have many, many wells because those wells produce gallons-a-day, not barrels."

Rapp was cautious towards regulation of oil and gas in general.

"The other impact on regulating them is the impact on the refineries," she said. "The refinery in Bradford and the refinery Ergon across the river in Pittsburgh. Those two refineries take most of the Pennsylvania crude. I believe United takes a little bit of Pennsylvania crude, but most of their crude comes from Canada. So if the refineries are not getting the oil that they need, that Pennsylvania crude, which is a paraffin-based crude versus a sulphur-based crude, those refineries are hurting.

"When we talk about this issue, it's a jobs issue. It's our industry here and it's not just the producers. It's those refineries, everybody that works for those refineries and everybody that contributes to that oil production. Whether it's the pump jacks, whether it's the wrenches at the hardware store, or the wire or whatever, that is a big part of our economy here. So that's a big concern of mine is that bill addressing the governing lines, the one call."